Superannuation, the ultimate government cash cow?

Vixs · 19 March 2016

McLovin said:
The high threshold is to avoid capturing family businesses. Personally, aside from the ease of avoidance, I think death tax is a pretty horrible concept. If you've paid tax all your life, have had no recourse to state pensions etc and your assets will continue to pay taxes after you pass, the government has little right to swoop in and take a % of your assets just because you carked it.

Look at Bill Gates, Buffett, Zuckerberg etc. They're donating their assets to a charitable trust (tax free) when they die to get around death taxes. Once the assets are inside the charity the earnings will be tax free. The government shoots itself in the foot.

It's no different to any any type of tax. I went to work all week, got paid and the government takes a third of it. The more I earn, the more they'll take. The difference is that these taxes directly reduce my ability to pay for things that I'll use now.

Estate taxes don't harm the people that have passed away - they're dead. The only people impacted are those that have received a windfall.

We are going to need to get the revenue from somewhere and excluding estate taxes from the mix leaves a bigger load to be carried by the living, breathing individuals raising families, running businesses, being part of the community...

It doesn't make sense to me that our whole progressive tax system is geared at those who have the means to pay, paying more, and yet estates should be exempt.

McLovin · 19 March 2016

Vixs said:
It doesn't make sense to me that our whole progressive tax system is geared at those who have the means to pay, paying more, and yet estates should be exempt.

Estates, outside of super, are taxed though. After the person dies the estate's assets are still income producing and will still pay tax. They are not, at any point, exempt.

Super on the other hand is taxed concessionally during accumulation, not taxed once in pension phase and then able to passed tax free to heirs.

Vixs · 19 March 2016

McLovin said:
Estates, outside of super, are taxed though. After the person dies the estate's assets are still income producing and will still pay tax. They are not, at any point, exempt.

Super on the other hand is taxed concessionally during accumulation, not taxed once in pension phase and then able to passed tax free to heirs.

But estates aren't really taxed. Homes are inherited and can be sold CGT free within 2 years of death, non-CGT assets like savings are not taxed, CGT assets aren't taxable until they're sold.

Super is not passed tax free, only the tax-free component which for many people is minimal. The taxable component attracts 17% tax incl Medicare levy with no exempt threshold for assets received by non-dependents (which includes adult kids).

McLovin · 19 March 2016

Vixs said:
But estates aren't really taxed. Homes are inherited and can be sold CGT free within 2 years of death, non-CGT assets like savings are not taxed, CGT assets aren't taxable until they're sold.

Sorry, I wasn't meaning residential property, I meant cash, shares, businesses.

Vixs said:
Super is not passed tax free, only the tax-free component which for many people is minimal. The taxable component attracts 17% tax incl Medicare levy with no exempt threshold for assets received by non-dependents (which includes adult kids).

You're correct. I thought super could be passed down a familial line tax free.

qldfrog · 20 March 2016

McLovin said:
Sorry, I wasn't meaning residential property, I meant cash, shares, businesses.

You're correct. I thought super could be passed down a familial line tax free.

On the above I agree with Mc lovin that the act of handing over cash, investment etc may not need to be taxed as after all, they are the results of an already taxed process, but the family home of the deceased if passed to children should be taxed in a way as it was never taxed, and other assets handovers should be seen as CGT event s(acquisition) if not done yet
You should not penalise savings so the reason I favor a pension to everyone over a given age, doing otherwise selectively as is done now is a prize to people who decided to splash out vs living frugal lives.This pension should also become part of overall income and be taxed as any other incomes, inc retirement saving incomes.

McLovin · 20 March 2016

qldfrog said:
You should not penalise savings so the reason I favor a pension to everyone over a given age, doing otherwise selectively as is done now is a prize to people who decided to splash out vs living frugal lives.This pension should also become part of overall income and be taxed as any other incomes, inc retirement saving incomes.

A universal state pension requires contributions to be made by employers, employees or both. It's not supposed to be a free cash handout from consolidated revenue beyond the basic pension which is designed to prevent retirees falling into poverty.

Bill M · 20 March 2016

qldfrog said:
You should not penalise savings so the reason I favor a pension to everyone over a given age, doing otherwise selectively as is done now is a prize to people who decided to splash out vs living frugal lives.This pension should also become part of overall income and be taxed as any other incomes, inc retirement saving incomes.

A friend of mine is a New Zealander. He is a multi millionaire. One day we were discussing pensions and the like and he told me that in New Zealand everybody gets the pension, no matter what your assets are. I nearly fell off my seat when he told me that. My question was, why would give a state funded pension to a millionaire? He said it wasn't as simple as that. He said, we don't get the benefits the same as you guys do and our system different to yours and we get taxed on it too. So what you are saying is already happening in NZ.

qldfrog · 21 March 2016

Bill M said:
A friend of mine is a New Zealander. He is a multi millionaire. One day we were discussing pensions and the like and he told me that in New Zealand everybody gets the pension, no matter what your assets are. I nearly fell off my seat when he told me that. My question was, why would give a state funded pension to a millionaire? He said it wasn't as simple as that. He said, we don't get the benefits the same as you guys do and our system different to yours and we get taxed on it too. So what you are saying is already happening in NZ.

NZ is becoming more and more attractive to me and with the 50 billions they will not spend on submarines which will never be used except maybe as targets for enemy force drones, that is a lot of universal minimum (and I mean minimum) pension to everyone, taxed.
If pension was as it is meant to be,a way to avoid people starving in the street, it would be universal, regardless the age and same amount (even name) than other benefits: unemployment, youth allowance etc
One "do not starve under the bridge" minimum welfare for all; I am for it ... and have no problem being taxed for that, but I have a problem being taxed to pay money selectively to people who sit on millions of assets which will never be taxed, just because they are old.
My youth idealist unrealistic view of the world: girls are nice, old people are kind and wise has changed a lot with life experience.
Kudo on NZ

sptrawler · 21 March 2016

Bill M said:
A friend of mine is a New Zealander. He is a multi millionaire. One day we were discussing pensions and the like and he told me that in New Zealand everybody gets the pension, no matter what your assets are. I nearly fell off my seat when he told me that. My question was, why would give a state funded pension to a millionaire? He said it wasn't as simple as that. He said, we don't get the benefits the same as you guys do and our system different to yours and we get taxed on it too. So what you are saying is already happening in NZ.

It is the same in Canada and the U.K, our system was the same, until the politicians decided to raid the pot.
Julia used to go mad about it, but no one listens, until it effects them.

The funny thing is we are dumb enough, to let it all happen again.:1zhelp:

sptrawler · 3 May 2016

Well what Scott Morrison is wanting to implement, will certainly please those who think, the current system is a rort.
Sydboy has finally got what he wanted, RBL's re introduced, makes a lot of sense. Shame the limits don't.lol

http://www.superguide.com.au/retirement-planning/2016-federal-budget-summary

If this is correct, I wouldn't be putting anything extra into super, it is actually harsher than what Labor were suggesting.

It is a shame they didn't suggest reigning in their own pensions.lol

Funny how the limits are per person, but there is no suggestion of allowing a couple to average their totals, yet a lot of talk about spouses.

SmokeyGhost · 4 May 2016

The author of the article in SuperGuide does use somewhat emotional terms in a number of places , ie, '"devastating" etc which seems a little over the top.

Anyway, here is the actual budget paper no 2. Read from page 40 onwards for the superannuation matters.

http://www.budget.gov.au/2016-17/content/bp2/download/BP2_consolidated.pdf

Note that it is also intended to remove the work test for those under 75 years of age so that group will have the ability to contribute a tax deductible $25k pa. That part suits me if it gets through. As I've already turned most of my SMSF into tax free using the $540k arrangements, I cannot complain as it was a good run while it lasted.

Bill M · 4 May 2016

Just had a read of it sp. Whilst the $1.6 Million cap balance per individual sounds high, you just can't get there. They introduced a lifetime cap of the non concessional limit of $500,000 per person. Just how do they suppose you can get there with such a low limit? The problem with this policy is that it is effective immediately. It means someone who was planing to do a major top up simply can not do it anymore. 500K is the limit, no more.

And now they are going to tax the earnings of a TRIP (transition to retirement pension). Talk about changing the goal posts half way through a retirement. Example, my wife is on a TRIP, she still wants to work 2 or 3 years more, they promised us no tax on earnings on a TRIP, now they will tax it? Thank you very much for nothing, thieving bastards. If we had known this 3 years ago we would not have taken out a TRIP.

To all Superannuation investors, this years changes are dramatic. Think long and hard as to whether you really want to put your money into super. The 500k lifetime non concessional limit is terrible. They didn't think about the people who have only had 23 years in the compulsory super system. Just how can they build a $1.6 Million super fund with a 500K limit? It is a step backwards in my opinion.

Be careful out there and don't trust the Government to do the right thing by you.

CanOz · 4 May 2016

qldfrog said:
NZ is becoming more and more attractive to me and with the 50 billions they will not spend on submarines which will never be used except maybe as targets for enemy force drones, that is a lot of universal minimum (and I mean minimum) pension to everyone, taxed.
If pension was as it is meant to be,a way to avoid people starving in the street, it would be universal, regardless the age and same amount (even name) than other benefits: unemployment, youth allowance etc
One "do not starve under the bridge" minimum welfare for all; I am for it ... and have no problem being taxed for that, but I have a problem being taxed to pay money selectively to people who sit on millions of assets which will never be taxed, just because they are old.
My youth idealist unrealistic view of the world: girls are nice, old people are kind and wise has changed a lot with life experience.
Kudo on NZ

Bye bye!

SmokeyGhost · 4 May 2016

Hmm, some will accumulate $1.6M and some wont. Just as is the case now. Never been any surety that the previously "desired" amount of $1M was achievable or guaranteed for many. About 95% of the population never had the ability to accumulate even that level in superannuation. So the potential for a hue and cry about "I'll wont get" $1.6M will be the usual hot air.

As for changes to tax arrangements, it has always been the case. As an example, before the introduction of the GST in 2000, anything over $50k was taxed at 48.5%, so the population will do what it has always done; complain about tax or other revenue arrangements not being fair to them and then adjust according to the legislation. Ya just get on with it I reckon.

Junior · 4 May 2016

Some over-reactions here.

Superannuation is still an extremely tax-effective structure. Earnings tax 15% and then 0% from retirement. CGT 10% and then 0% from retirement. You don't get those tax rates anywhere else.

The TTR strategy was always a loophole and an unintended consequence, and has finally been closed.

$500,000 lifetime cap seems a little low, but when combined with concessional cap of $25k per annum it will be sufficient. There's nothing stopping you from accumulating assets outside of super.

Perhaps there should be a higher lifetime cap for those over 50 and with a low balance, to account for those who were planning on stuffing money into super just in time for retirement.

SmokeyGhost · 4 May 2016

You probably have a point there, Junior.

In my case about 1/3 of my income is from investments outside of superannuation and the account-based pension (tax free) makes up for the rest. Plus with the tax free threshold as it applies to me, as it does to others, under the present taxation arrangements I still, and will still, get a tax refund. I consider my annual income as more than adequate.

Never quite understood the emphasis on superannuation being the ONLY avenue for generating a retirement income but that's just me. Frankly, I am now glad I rejected the advice of the planner who set up the SMSF, recommending that all investments be transferred to the SMSF. That recommendation was rejected on the basis of being adverse to pay the ponce fees on assets on which they originally had no involvement.

craft · 4 May 2016

The 1.6M cap has a large impact on me as a lot of the Capital Gain I expected to convert tax free will now attracts 10% tax and a lump of future earnings that would have been tax free will now be taxed at 15%. (I can hear the violins now). But I do think the Cap is a fair idea. Not sure why its introduction is delayed until 2017 – that just enables people that are/become old enough to enter the pension phase to realise their gains tax free and then reshuffle the excess back to accumulation next year. Free kick for the rich oldies that younger people don’t get. (Queue the violin)

I do think that as the agreement on taxation for amounts over 1.6M have been changed then amounts above 1.6M should be available for withdrawal prior to reaching preservation age. I know I would reduce my balance if I was allowed (despite the still very generous structure). Trying to make Super more fit for purpose and at the same time trapping excess funds in there prior to preservation age is a bit of a contradiction.

sptrawler · 4 May 2016

craft said:
The 1.6M cap has a large impact on me as a lot of the Capital Gain I expected to convert tax free will now attracts 10% tax and a lump of future earnings that would have been tax free will now be taxed at 15%. (I can hear the violins now). But I do think the Cap is a fair idea. Not sure why its introduction is delayed until 2017 – that just enables people that are/become old enough to enter the pension phase to realise their gains tax free and then reshuffle the excess back to accumulation next year. Free kick for the rich oldies that younger people don’t get. (Queue the violin)

I do think that as the agreement on taxation for amounts over 1.6M have been changed then amounts above 1.6M should be available for withdrawal prior to reaching preservation age. I know I would reduce my balance if I was allowed (despite the still very generous structure). Trying to make Super more fit for purpose and at the same time trapping excess funds in there prior to preservation age is a bit of a contradiction.

The other thing that is a bit odd is the $500k lifetime limit, it will make it difficult for couples to balance their accounts. But I guess that was the purpose.

sptrawler · 4 May 2016

Junior said:
Some over-reactions here.

Superannuation is still an extremely tax-effective structure. Earnings tax 15% and then 0% from retirement. CGT 10% and then 0% from retirement. You don't get those tax rates anywhere else.

The TTR strategy was always a loophole and an unintended consequence, and has finally been closed.

$500,000 lifetime cap seems a little low, but when combined with concessional cap of $25k per annum it will be sufficient. There's nothing stopping you from accumulating assets outside of super.

Perhaps there should be a higher lifetime cap for those over 50 and with a low balance, to account for those who were planning on stuffing money into super just in time for retirement.

Good points Junior, as Bill says getting a reasonable amount in will now be the issue for older Australians, for example if they sell an property.

SmokeyGhost · 4 May 2016

craft said:
The 1.6M cap has a large impact on me as a lot of the Capital Gain I expected to convert tax free will now attracts 10% tax and a lump of future earnings that would have been tax free will now be taxed at 15%. (I can hear the violins now). But I do think the Cap is a fair idea. Not sure why its introduction is delayed until 2017 – that just enables people that are/become old enough to enter the pension phase to realise their gains tax free and then reshuffle the excess back to accumulation next year. Free kick for the rich oldies that younger people don’t get. (Queue the violin)

I do think that as the agreement on taxation for amounts over 1.6M have been changed then amounts above 1.6M should be available for withdrawal prior to reaching preservation age. I know I would reduce my balance if I was allowed (despite the still very generous structure). Trying to make Super more fit for purpose and at the same time still trapping excess funds in there prior to preservation age is a bit of a contradiction.

As requested:

Seriously, most unfortunate for you being on the wrong side of the ledger on this one.

It will only be curiosity on my part but I will watch with interest those who purchased property through the superannuation structure. A very lumpy product for an account-based pension in my view. In a private capacity I recently acted on behalf of an estate to sell a property to an SMSF and I think the purchaser may well be having second thoughts. Fortunately for the sellers, settlement is this week.

Superannuation, the ultimate government cash cow?

Vixs

McLovin

Vixs

McLovin

qldfrog

McLovin

Bill M

Self Funded Retiree

qldfrog

sptrawler

sptrawler

SmokeyGhost

Bill M

Self Funded Retiree

CanOz

Home runs feel good, but base hits pay bills!

SmokeyGhost

Junior

SmokeyGhost

craft

sptrawler

sptrawler

SmokeyGhost

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